Quotas for Women on Boards are Wrong

One thing I learned before I became a director is that there are an abundance of board readiness events for newbies like me. Since there are so many, I recently chose to go to one that had four impressive women who had served on a mix of non-profit and corporate boards. About 200 people, mostly women, listened attentively to the discussion. At one point in the discussion, one of the panelists, a director on a Fortune 500 company BoD, shared this insight:

“If a board already has one woman on their board, it is unlikely — actually impossible — to elect another. […] No woman board member can nominate another woman board member…”

I waited for a “but” or even a “when” or perhaps a pause followed by “I’m joking.” But no. No one gasped (except, of course, myself) and the moderator did not ask any clarifying questions. The statement was left unchallenged by the other panelists, perhaps accepted as a truth.

I left the event deeply disturbed — not just by her comment, but by the non-response of the rest of her peers, and the audience’s silence. Even female board directors, apparently, have accepted that there is such a thing as a “woman’s seat” for a corporate board. And, while it’s not a legally imposed quota, the room’s response suggested that it has become a de facto quota.

I have never believed in quotas; now I started to consider if they made sense, if they would expand the number of women serving on corporate boards.

Women are half of the labor population and 75% of the buying power, yet hold less than 15% of board seats in the US and less than 10% in Europe. There has been research showing that companies with mixed gender boards perform better than those without. Consider the findings of Catalyst’s study of Fortune 500 companies:

Return on Equity: On average, companies with the highest percentages of women board directors outperformed those with the least by 53 percent.

Return on Sales: On average, companies with the highest percentages of women board directors outperformed those with the least by 42 percent.

Return on Invested Capital: On average, companies with the highest percentages of women board directors outperformed those with the least by 66 percent.

There is also evidence that women are more effective as board members. Reuters describes this phenomenon: among other things, women do more homework before board meetings and cause higher attendance rates overall. Many have argued it just makes good business sense to create diversity. Sure, there are some counter arguments that this research could be correlation, not causation. Perhaps effective boards just choose to include more women. But who wouldn’t want these performance results?

We should not be surprised, then, that some countries and financial stewardship organizations have suggested quotas are the way to go. Governments throughout Europe have especially decided that action is required to increase the number of women in the executive suite. The thinking is that quotas will create a force function to overcome gender gap barriers that have been well documented.

But will mandating change via quotas actually make a difference? I have doubts, for four main reasons:

Quotas signal tokenism. As suggested by what I saw at the panel, some woman currently serving on boards view their seat as a “woman’s seat.” Quotas would exacerbate this problem. Instead, we need all board members, male and female, to regard their ability to contribute as being on equal footing with all other members. Only then can boards be capable of being effective.

Groups don’t change dynamics until they decide to change their dynamics. If change is imposed from external pressures, groups simply find a way around the new rules. That’s been proven in research in many areas, but is especially well captured in by Lee Ann Banaszak’s classic on suffrage, Why Movements Succeed or Fail. The key is for those involved to recognize — for themselves — that something has to change. When change is forced onto communities, often the change is rejected. If a quota forced a board to accept a bunch of new (female) members, it’s easy to imagine that key discussions would end up being made over a pre-call, dinner, or a golf game, rather than within the board meeting itself — thus undermining the well-intentioned goals of the quota.

Quotas don’t necessarily increase the right kind of diversity. It’s possible to improve the gender ratio of boards without improving the diversity of the conversation. Perhaps the reason that mixed-gender boards perform better, for instance, is that the companies who elect to have more women on the board have chosen more forward-thinking business practices generally. Quotas could encourage less-enlightened firms to change the gender of the board members but still seek the same biases, education, and experiences, hence leading to more of the status quo. Again, we can turn to research done by Margaret Heffernan to show how our bias is a blindness that affects each of our ability to take in new ideas.

Quotas de-emphasize qualifications. In Norway, the first country to mandate quotas, research showed that the women promoted were less experienced than the directors they replaced. Professors at the University of Michigan found that firms that were forced to increase the share of women on their boards by more than ten percentage points saw one measure of corporate value fall by 18%.

Imposing quotas only targets a symptom — not the disease. Quotas won’t encourage meritocratic selection, or even increase the pipeline of qualified candidates, but merely propagate gender-oriented approach that is guaranteed to provoke a backlash. All of this is doing a disservice to the higher-level goal: better performance.

Some might suggest an answer is the firms that claim to help individuals achieve “board readiness.” I have invested a good bit of energy looking into these groups, and even joining some. And in my own, albeit limited experience of different organizations, these firms mostly exacerbate the problem. Rather than helping individuals recognize what key career experience they have (or lack), they accept fees for polishing resumes, promoting the use of buzzwords, and emboldening people without sufficient qualifications to believe they are ready for board positions. This merely dilutes the average strength of the applicants, and generates noise in the marketplace that makes connecting qualified candidates with those seeking them, harder.

The goal should not be just “more female board members,” but more female board members who are capable and credible once serving. To do that, we need to promote women into roles where they can gain the relevant experience: running a P&L, leading a company, delivering performance numbers, leading transformational initiatives, and managing risk. Once experience has been gained, “discovery” of these talents needs to be sponsored. Ultimately, most of work belongs to the exceptional person herself.

We need to have experienced people of all types, including women, serving boards effectively. There is no shortage of important problems that companies and our economies face that will benefit from a fresh point of view. Imposing quotas will quickly provide the appearance of change, but will in fact delay real change. In order for their ideas be heard, valued and therefore acted upon, women must be truly welcomed by the board’s selection process, not forced upon it. This may mean that changing the makeup of boards takes longer. But it will result in real change faster.

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